Question
A company is considering two equally risky, mutually exclusive projects A and B. The cost of capital is 9%. The CEO wants to use the
A company is considering two equally risky, mutually exclusive projects A and B. The cost of capital is 9%. The CEO wants to use the IRR criterion, while the CFO favors the NPV method. If the CEO's preferred criterion is used, how much value will the firm lose as a result of this decision?
| Year | Project A | Project B |
| 0 | -$4,000 | -$2,000 |
| 1 | 2,000 | 1,000 |
| 2 | 2,100 | 1,100 |
| 3 | 2,200 | 1,200 |
| 4 | 2,300 | 1,300 |
| 1169.87 | ||
| 1102.45 | ||
| 1239.72 | ||
| 1312.13 | ||
| 1037.35 |
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Fundamental accounting principle
Authors: John J. Wild, Ken W. Shaw, Barbara Chiappetta
21st edition
1259119831, 9781259311703, 978-1259119835, 1259311708, 978-0078025587
